IRBA: New Proposed International Standard for Less Complex Entities

23 November 2021
Auditing and Assurance
South African Accounting Academy

This is a landmark new draft standard, as it responds to demands to have a set of high-quality requirements that are tailored to the needs of LCEs. A global solution, such as this proposed by the IAASB, is preferred rather than increasingly fragmented jurisdictional-specific solutions for these entities. Its release is part of a broader effort to support implementation of quality audits and a globally consistent approach that is more scalable and proportionate to the circumstances of small, audited entities.

Because the IAASB is fast-tracking the development of this auditing standard, with the consultation process likely to be completed in around 12 months, participation is encouraged.

Comments = due by 30 Nov 2021

In SA, an audit is mandated through law or regulation. But, even when there is no statutory requirement for an audit, some SMEs may be required to have an audit for another reason such as sale of a business, raising capital or securing loans, or may choose to have a voluntary audit for management purposes.

The proposed global standard is relevant to, among others, users of financial statements; owners; management and those charged with governance of entities; preparers of financial statements; legislative or regulatory authorities; relevant local bodies with standard-setting authority; professional accountancy organisations; academics; regulators and audit oversight bodies; as well as auditors and audit firms.

This new standalone ED-ISA for LCEs, will affect audit clients described as less complex, in circumstances where they are voluntary or mandatory audits, or where there are planned audits for entities that are currently only being, or required to be, reviewed (not audited).

Click here to download the 170-page Proposed ISA for LCE:

https://www.ifac.org/system/files/publications/files/IAASB-Exposure-Draft-Audits-Less-Complex-Entities.pdf

How does this affect you and your clients?

Relevance to Auditors, Independent Reviewers & Accountants:

Auditors, independent reviewers and other professional accountants must perform their engagements in accordance with International Standards on Auditing, Review and other related services. If they fail to do so, they may be found negligent and thus incur possible liability.
This proposed standard will affect all entities that are small and medium-sized, and this is estimated to the major part of practitioners’ client bases.
It will also affect preparers of financial statements.
The proposed standard is expected to have simplified procedures proposed for LCEs, which must be followed by auditors, independent reviewers and other professional accountants.
This will affect mandatory, as well as voluntary audits and independent reviews.

Relevance to Your clients:

This is relevant to, among others, users of financial statements; owners; management and those charged with governance of entities.
It will affect audit clients described as less complex, in circumstances where they are voluntary or mandatory audits, or where there are planned audits for entities that are currently only being, or required to be, reviewed (not audited).

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